GS-3, Uncategorized

It is disinvestment, not privatisation

The Hindu

New disinvestment policy:

  • The intention of the policy is not to shrink the public sector but assets, including land and cash balances, of government companies can be hived off and used for investment in new projects.
  • And to increase efficiency.
  • The renaming of the Department of Disinvestment as the “Department of Investment and Public Asset Management” reflects the new thinking.

To increase efficiency:

  • The BJP-led NDA government is pursuing disinvestment, not to vacate the public sector, but to increase its efficiency.
  • If a government company is profitable without subsidies while competing with private firms, then why should government exit.
  • The new disinvestment mantra is to reduce interference, allow public sector enterprises to function along commercial principles by granting managerial independence in decision-making, such as in appointments.
  • The government did not give up its control over a single public sector company.
  • It merely offloaded a few shares in a handful of companies, mainly through the stock market, where many of the buyers picking up the divested shares were from the public sector — public sector banks, the Life Insurance Corporation of India or other government companies.
  • The divested companies remain state-owned and government control over them undiluted.

NITI Aayog is set to bring out fresh recommendations about loss-making units that can be sold, their assets valued and disposed of, and possible strategic sales.

Fiscal pressures

  • The disinvestment targets too suggest that it is a government caught between caution and the pressures of fiscal goals; not one striving to exit business. Of the disinvestment target of Rs.56,500 crore for this year, Rs.36,000 crore is to be raised from small sales, which are safer, but which do not dilute government control.
  • Financial parameters of government companies, such as borrowings and operating profits, are being closely monitored to identify possibilities of share buybacks, a new kind of disinvestment officials have recently come up with.
  • Money changed hands — it went from the two public sector units to the government. The government companies bought some of their shares from their owner, the government. The only effective change is that money which was on the company’s’ books is now in the government’s account under the head “Disinvestment Receipts”.
  • According to one estimate, the top 30 public sector companies hold more than Rs.1.5 lakh crore in cash and bank balances, which the government has realised is sitting idle. Government companies are being prodded to dip into their reserves — either to invest in growth-generating projects or to float shares buybacks.
  • The buybacks are a bit like the left hand buying what the right hand is selling.
  • The government is taking money out of one pocket and putting it in another—and getting richer. It’s not magic. It’s not privatisation. It’s disinvestment.

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